jnp-10q_20180331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-10352

 

JUNIPER PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

59-2758596

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

33 Arch Street

Boston, Massachusetts

 

02110

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (617) 639-1500

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

Emerging Growth Company ☐   

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares outstanding of the registrant’s common stock as of May 3, 2018: 11,101,007.

 


 

EXPLANATORY NOTE

Unless the context indicates otherwise, references in this Quarterly Report to “Juniper Pharmaceuticals,” “Juniper,” “the Company,” “we” “our,” and “us” mean Juniper Pharmaceuticals, Inc. and its subsidiaries.

 


 

Juniper Pharmaceuticals, Inc.

Table of Contents

 

 

 

 

 

Page

 

 

Part I—Financial Information

 

 

Item 1.

 

Financial Statements (unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

 

1

 

 

Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2018 and 2017

 

2

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three month periods ended March 31, 2018 and 2017

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2018 and 2017

 

4

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

Item 4.

 

Controls and Procedures

 

26

 

 

 

 

 

 

 

Part II—Other Information

 

 

Item 1.

 

Legal Proceedings

 

27

Item 1A.

 

Risk Factors

 

27

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

Item 3.

 

Defaults Upon Senior Securities

 

28

Item 4.

 

Mine Safety Disclosures

 

28

Item 5.

 

Other Information

 

28

Item 6.

 

Exhibits

 

29

Signatures

 

30

 

 

 

 


 

Part I—Financial Information

Item 1. Financial Statements

 

Juniper Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

 

 

 

March 31,

2018

 

 

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,685

 

 

$

21,446

 

Accounts receivable, net

 

 

8,737

 

 

 

4,734

 

Inventories

 

 

6,318

 

 

 

6,326

 

Prepaid expenses and other current assets

 

 

2,675

 

 

 

3,467

 

Total current assets

 

 

38,415

 

 

 

35,973

 

Property and equipment, net

 

 

15,880

 

 

 

15,229

 

Intangible assets, net

 

 

698

 

 

 

744

 

Goodwill

 

 

9,473

 

 

 

9,123

 

Other assets

 

 

73

 

 

 

151

 

Total assets

 

$

64,539

 

 

$

61,220

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,079

 

 

$

4,038

 

Accrued expenses and other

 

 

3,916

 

 

 

5,615

 

Deferred revenue

 

 

635

 

 

 

6,141

 

Current portion of long-term debt

 

 

572

 

 

 

546

 

Total current liabilities

 

 

10,202

 

 

 

16,340

 

Long-term debt, net of current portion

 

 

3,232

 

 

 

3,253

 

Other non-current liabilities

 

 

85

 

 

 

115

 

Total liabilities

 

 

13,519

 

 

 

19,708

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock $0.01 par value; 150,000 shares authorized; 12,521 issued and 11,101

   outstanding at March 31, 2018 and 12,257 issued and 10,844

   outstanding at December 31, 2017

 

 

125

 

 

 

123

 

Additional paid-in capital

 

 

294,061

 

 

 

292,108

 

Treasury stock (at cost), 1,420 shares at March 31, 2018 and 1,413 shares at December 31, 2017

 

 

(8,661

)

 

 

(8,601

)

Accumulated deficit

 

 

(232,288

)

 

 

(238,961

)

Accumulated other comprehensive loss

 

 

(2,217

)

 

 

(3,157

)

Total stockholders’ equity

 

 

51,020

 

 

 

41,512

 

Total liabilities and stockholders’ equity

 

$

64,539

 

 

$

61,220

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1


 

Juniper Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

March 31

 

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

Product revenues

 

$

10,074

 

 

$

7,726

 

Service revenues

 

 

5,450

 

 

 

3,521

 

Total revenues

 

 

15,524

 

 

 

11,247

 

Cost of product revenues

 

 

6,016

 

 

 

4,313

 

Cost of service revenues

 

 

3,010

 

 

 

2,243

 

Total cost of revenues

 

 

9,026

 

 

 

6,556

 

Gross profit

 

 

6,498

 

 

 

4,691

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

419

 

 

 

379

 

Research and development

 

 

974

 

 

 

1,346

 

General and administrative

 

 

4,089

 

 

 

4,421

 

Total operating expenses

 

 

5,482

 

 

 

6,146

 

Income (loss) from operations

 

 

1,016

 

 

 

(1,455

)

Interest expense, net

 

 

(45

)

 

 

(28

)

Other income, net

 

 

(199

)

 

 

42

 

Total non-operating (expense) income

 

 

(244

)

 

 

14

 

Income (loss) before income taxes

 

 

772

 

 

 

(1,441

)

Income tax (benefit) expense

 

 

 

 

 

 

Net income (loss)

 

$

772

 

 

$

(1,441

)

Adjustments attributable to preferred stockholders

 

 

 

 

 

(7

)

Net income (loss) available to common stockholders

 

$

772

 

 

$

(1,448

)

Basic net income (loss) per common share

 

$

0.07

 

 

$

(0.13

)

Diluted net income (loss) per common share

 

$

0.06

 

 

$

(0.13

)

Basic weighted average common shares outstanding

 

 

10,943

 

 

 

10,803

 

Diluted weighted average common shares outstanding

 

 

12,287

 

 

 

10,803

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


 

Juniper Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Net income (loss)

 

$

772

 

 

$

(1,441

)

Other comprehensive income (loss) components:

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

940

 

 

 

228

 

Total other comprehensive income (loss)

 

 

940

 

 

 

228

 

Comprehensive income (loss)

 

$

1,712

 

 

$

(1,213

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

Juniper Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

772

 

 

$

(1,441

)

Reconciliation of net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

590

 

 

 

484

 

Stock-based compensation expense

 

 

566

 

 

 

341

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,799

)

 

 

2,107

 

Inventories

 

 

8

 

 

 

(72

)

Prepaid expenses and other current assets

 

 

1,145

 

 

 

48

 

Accounts payable

 

 

1,117

 

 

 

(1,363

)

Accrued expenses and other

 

 

(1,675

)

 

 

(1,039

)

Deferred rent

 

 

(11

)

 

 

(9

)

Deferred revenue

 

 

186

 

 

 

806

 

Net cash used in operating activities

 

 

(1,101

)

 

 

(138

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(875

)

 

 

(520

)

Net cash used in investing activities

 

 

(875

)

 

 

(520

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of common stock / exercise of options

 

 

1,387

 

 

 

 

Proceeds from equipment loans

 

 

 

 

 

1,501

 

Principal payments on debt

 

 

(138

)

 

 

(79

)

Payments to satisfy employee taxes due on vesting of restricted awards

 

 

(60

)

 

 

 

Dividends paid

 

 

 

 

 

(7

)

Net cash provided by financing activities

 

 

1,189

 

 

 

1,415

 

Effect of exchange rate changes on cash and cash equivalents

 

 

26

 

 

 

8

 

Net (decrease) increase in cash and cash equivalents

 

 

(761

)

 

 

765

 

Cash and cash equivalents, beginning of period

 

 

21,446

 

 

 

20,994

 

Cash and cash equivalents, end of period

 

$

20,685

 

 

$

21,759

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

46

 

 

$

23

 

Supplemental noncash information

 

 

 

 

 

 

 

 

Purchases of equipment through accounts payable and accrued expenses

 

$

98

 

 

$

215

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

Juniper Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) Interim Condensed Consolidated Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Annual Report on Form 10-K of Juniper Pharmaceuticals, Inc. (“Juniper” or the “Company”) for the year ended December 31, 2017 filed with the SEC on March 9, 2018 (the “2017 Annual Report”). In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2018, and its results of operations for the three months ended March 31, 2018 and 2017, and cash flows for the three months ended March 31, 2018 and 2017. The condensed consolidated balance sheet at December 31, 2017 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. Results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results for the year ending December 31, 2018 or any period thereafter.

At March 31, 2018, cash and cash equivalents were $20.7 million. The Company’s future funding requirements depend on a number of factors, including the rate of market acceptance of its current and future products and services and the resources the Company devotes to developing and supporting the same. The Company believes that current cash and cash equivalents, as well as cash generated from operations, will be sufficient to meet anticipated cash needs for working capital and capital expenditures through the next twelve months from the date of the filing of this Form 10-Q. The Company may be dependent on its ability to raise additional capital to finance operations. If the Company is not able to raise additional capital on terms acceptable to it, or at all, as and when needed, it may be required to evaluate future anticipated capital or operational needs.

Management Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures at the date of the financial statements during the reporting period. Significant estimates are used for, but are not limited to, revenue recognition, allowance for doubtful accounts, inventory reserves, impairment analysis of goodwill and intangibles including their useful lives, research and development accruals, deferred tax assets, liabilities and valuation allowances, and fair value of stock options. On an ongoing basis, management evaluates its estimates. Actual results could differ from those estimates.

 

(2) Inventories

Inventories are stated at the lower of cost or market, determined on a first-in, first-out method. The Company monitors standard costs on a monthly basis and updates them annually as necessary to reflect change in raw material costs and labor and overhead rates. Components of inventory cost include materials, labor and manufacturing overhead. Inventories consist of the following (in thousands): 

 

 

 

March 31,

2018

 

 

December 31,

2017

 

Raw materials

 

$

1,823

 

 

$

1,921

 

Work in process

 

 

3,701

 

 

 

3,299

 

Finished goods

 

 

794

 

 

 

1,106

 

Total

 

$

6,318

 

 

$

6,326

 

 

The Company provides inventory allowances when conditions indicate that the selling price could be less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand and reductions in selling prices. The Company balances the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory reserves that could adversely impact its gross margins. The inventory reserve balance at March 31, 2018 and December 31, 2017 was $0.5 million.   During the three months ended March 31, 2018 and 2017, the Company recorded charges in the condensed consolidated statements of operations for excess and obsolete inventory of $11,000 and $0.1 million, respectively.

5


 

(3) Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination. The Company does not amortize its goodwill, but instead tests for impairment annually in the fourth quarter and more frequently whenever events or changes in circumstances indicate that fair value of the asset may be less than the carrying value of the asset.

Changes to goodwill during the three months ended March 31, 2018 were as follows (in thousands):

 

 

 

Total

 

Balance—December 31, 2017

 

$

9,123

 

Effects of foreign currency translation

 

 

350

 

Balance—March 31, 2018

 

$

9,473

 

 

The Company capitalizes and includes in intangible assets the costs of trademark, developed technology and customer relationships. Intangible assets are recorded at fair value at the time of their acquisition and stated net of accumulated amortization. The Company amortizes its intangible assets that have finite lives using either the straight-line or accelerated method, based on the useful life of the asset over which it is expected to be consumed utilizing expected undiscounted future cash flows. Amortization is recorded over the estimated useful lives ranging from 3 to 7 years. The Company evaluates the realizability of its definite lived intangible assets whenever events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, the Company estimates the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated by the assets using a risk-adjusted discount rate. To estimate the fair value of the assets, the Company uses market participant assumptions pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement and Disclosures, (“ASC 820”). If the estimate of an intangible asset’s revised useful life is changed, the Company will amortize the remaining carrying value of the intangible asset prospectively over the revised useful life.

 

Intangible assets consist of the following at March 31, 2018 and December 31, 2017 (in thousands):

 

 

 

Trademark

 

 

Developed

Technology

 

 

Customer

Relationships

 

 

Total

 

Gross carrying amount

 

$

300

 

 

$

1,370

 

 

$

1,240

 

 

$

2,910

 

Foreign currency translation adjustment

 

 

(53

)

 

 

(153

)

 

 

(138

)

 

 

(344

)

Accumulated amortization

 

 

(247

)

 

 

(907

)

 

 

(714

)

 

 

(1,868

)

Balance—March 31, 2018

 

$

 

 

$

310

 

 

$

388

 

 

$

698

 

 

 

 

Trademark

 

 

Developed

Technology

 

 

Customer

Relationships

 

 

Total

 

Gross carrying amount

 

$

300

 

 

$

1,370

 

 

$

1,240

 

 

$

2,910

 

Foreign currency translation adjustment

 

 

(53

)

 

 

(198

)

 

 

(179

)

 

 

(430

)

Accumulated amortization

 

 

(247

)

 

 

(839

)

 

 

(650

)

 

 

(1,736

)

Balance—December 31, 2017

 

$

 

 

$

333

 

 

$

411

 

 

$

744

 

 

Amortization expense for the three months ended March 31, 2018 and 2017 was $0.1 million. Amortization expense related to developed technology is classified as a component of cost of service revenues in the accompanying consolidated statements of operations. Amortization expense related to trademark and customer relationships is classified as a component of general and administrative expenses in the accompanying consolidated statements of operations.

As of March 31, 2018, amortization expense remaining on existing intangible assets is as follows (in thousands):

 

Year ending December 31,

 

Total

 

Remainder of 2018

 

$

225

 

2019

 

 

272

 

2020

 

 

201

 

Total

 

$

698

 

 

6


 

(4) Debt and Other Contractual Obligations

In September 2013, Juniper assumed debt of $3.9 million in connection with its acquisition of Juniper Pharma Services (“JPS”). JPS had entered into a Business Loan Agreement (“Loan Agreement”) covering three loan facilities (collectively referred to as the “original agreements”) with Lloyds TSB Bank (“Lloyds”) as administrative agent. In May 2017, JPS repaid one of the existing loan facilities upon which JPS subsequently entered into a new loan facility with the same administrative agent for the same outstanding balance. The refinancing was accounted for as a modification with no resulting gain or loss. The remaining original agreements and the new agreement are collectively referred to as the “loan facilities”.

As of March 31, 2018, the Company owed $2.5 million on the loan facilities. All facilities are due for repayment over periods ranging from 7-15 years from the date of drawdown. Two of the facilities bear interest at the Bank of England’s base rate plus 1.95%, and 2.55%, respectively. The weighted average interest rates at March 31, 2018 for these two facilities were 2.45% and 3.05%, respectively. The third facility is a fixed rate agreement bearing interest at 2.99% per annum. The weighted average interest rate for the three loan facilities for the three months ended March 31, 2018 was 2.76%. The loan facilities are secured by the mortgaged property and an unlimited lien on other assets of JPS. The loan facilities contain financial covenants that limit the amount of indebtedness Juniper Pharma Services may incur, requires Juniper Pharma Services to maintain certain levels of net worth, and restricts Juniper Pharma Services’ ability to materially alter the character of its business. As of March 31, 2018, the Company is in compliance with all of the covenants under the loan facilities.

 

As of March 31, 2018, the Company owed $1.4 million on its equipment loans. During the quarter ending March 31, 2017, the Company entered into two loans totaling $1.5 million with payments through March 2022 for equipment in its Nottingham, U.K. facility at an interest rate of 2.09%. The transactions were considered failed sales-leaseback arrangements as the Company will obtain title to the equipment at the end of the term of the financing for little or no consideration. These failed sale-leaseback arrangements have been recorded as a component of long-term debt on the Company’s condensed consolidated balance sheets. The initial terms of the loans are 60 months.  

 

In October 2015, the Company entered into an operating lease agreement for its corporate office in Boston, Massachusetts. The initial term of the lease agreement is approximately 39 months and ends in the first quarter of 2019, which includes a three-month free rent period.

 

In December 2016, the Company entered into an API Supply Agreement for a manufacturer of progesterone under which the Company has agreed to annual minimum volume commitments until December 2019.

 

The Company’s significant outstanding contractual obligations relate to operating leases for the Company’s facilities, loan agreements and minimum volume commitments. The Company’s facility leases are non-cancellable and contain renewal options. The Company’s future contractual obligations as of March 31, 2018 include the following (in thousands):

 

 

 

Total

 

 

Remainder of 2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Thereafter

 

Operating lease

   obligations

 

$

407

 

 

$

333

 

 

$

74

 

 

$

 

 

$

 

 

$

 

 

$

 

Loan principal repayments

 

 

2,453

 

 

 

193

 

 

 

251

 

 

 

258

 

 

 

265

 

 

 

273

 

 

 

1,213

 

Capital lease obligations

 

 

1,351

 

 

 

243

 

 

 

337

 

 

 

351

 

 

 

365

 

 

 

55

 

 

 

 

 

Minimum purchase

   obligation

 

 

5,062

 

 

 

3,203

 

 

 

1,859

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

9,273

 

 

$

3,972

 

 

$

2,521

 

 

$

609

 

 

$

630

 

 

$

328

 

 

$

1,213

 

 

 

(5) Intravaginal Ring Technology License

In March 2015, the Company obtained an exclusive worldwide license (“License Agreement”) to the intellectual property rights for a novel segmented intravaginal ring (“IVR”) technology. Due to its novel polymer and segmentation composition, the Company believes the IVR has the potential to deliver one or more drugs, including hormones and larger molecules such as peptides, at different dosages and release rates within a single segmented ring. Drugs such as progesterone and leuprolide have already been tested using the technology and demonstrated sustained release for up to three weeks. This technology was developed by Dr. Robert Langer from the Massachusetts Institute of Technology (“MIT”) and Dr. William Crowley from Massachusetts General Hospital (“MGH”) and Harvard Medical School. Drs. Langer and Crowley each agreed to serve a three-year term, which ended in March 2018, as strategic advisors to the Company in exchange for an upfront one-time payment plus quarterly fees and equity compensation.

7


 

Unless earlier terminated by the parties, the License Agreement will remain in effect until the later of (i) the date on which all issued patents and filed patent applications within the licensed patent rights have expired or been abandoned and (ii) one year after the last sale for which a royalty is due under the License Agreement or 10 years after such expiration or abandonment date referred to in (i), whichever is earlier. Juniper has the right to terminate the License Agreement by giving 90 days advance written notice to MGH. MGH has the right to terminate the License Agreement based on the Company’s failure to make payments due under the License Agreement, subject to a 15 day cure period, or the Company’s failure to maintain the insurance required by the License Agreement. MGH may also terminate the License Agreement based on Juniper’s non-financial default under the License Agreement, subject to a 60 day cure period.

Pursuant to the terms of the License Agreement, Juniper has agreed to reimburse MGH for all costs associated with the preparation, filing, prosecution and maintenance of the licensed patent rights, and has agreed to pay MGH a $50,000 annual license fee on each of the first five year anniversaries of the effective date of the License Agreement, and a $100,000 annual license fee beginning on the sixth anniversary of the effective date of the License Agreement and on each subsequent anniversary thereafter. The annual license fee is creditable against any royalties or sublicense income payable in each calendar year.

Under the terms of the License Agreement, Juniper has agreed to use commercially reasonable efforts to develop and commercialize at least one product and/or process related to the IVR technology, which efforts will include the making of certain minimum annual expenditures in each of the first five years following the effective date of the License Agreement. Juniper has also agreed to pay MGH certain milestone payments totaling up to $1.2 million tied to the Company’s achievement of certain development and commercialization milestones, and certain annual royalty payments based on net sales of any such patented products or processes developed by Juniper.

On April 24, 2018, Juniper entered into an Exclusive License Agreement with Daré Bioscience, Inc. (“Daré”), the “Daré License Agreement”)  pursuant to which the Company granted Daré (a) an exclusive worldwide license under certain patent rights (i) owned by the Company and (ii) exclusively licensed to the Company under the License Agreement dated as of March 25, 2015 by and between Juniper and The General Hospital Corporation, as amended, to make, have made, use, have used, sell, have sold, import and have imported products and processes; and (b) a non-exclusive worldwide license under certain technological information owned by the Company to make, have made, use, have used, sell, have sold, import and have imported products and processes. Daré is also entitled to sublicense the rights granted to it under the Daré License Agreement.

 

 

(6) Segments and Geographic Information

The Company and its subsidiaries currently operate in two segments, product and service. The product segment oversees the supply chain and manufacturing of Crinone, the Company’s sole commercialized product. The service segment includes product development, clinical trial manufacturing, and advanced analytical and consulting services for the Company’s customers as well as characterizing and developing pharmaceutical product candidates for the Company’s internal programs. The Company conducts its advanced formulation, analytical and consulting services through its subsidiary, Juniper Pharma Services, the Company’s UK-based provider of pharmaceutical development, clinical trial manufacturing and advanced analytical and consulting services to the pharmaceuticals industry. The Company has integrated its supply chain management for Crinone into those operations and has therefore sought to capture synergies by transferring all operational activities related to its historic business. The Company owns certain plant and equipment physically located at third-party contractor facilities in the United Kingdom and Switzerland.

The Company’s largest customer, Merck KGaA, utilizes a Switzerland-based subsidiary to acquire product from the Company, which it then sells throughout the world, excluding the United States.   

The following tables show selected information by geographic area (in thousands):

Revenues:

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

United States

 

$

3,542

 

 

$

1,628

 

Switzerland

 

 

10,278

 

 

 

7,757

 

United Kingdom

 

 

793

 

 

 

949

 

Other countries

 

 

911

 

 

 

913

 

Total

 

$

15,524

 

 

$

11,247

 

 

8


 

Total assets:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

United States

 

$

21,233

 

 

$

21,683

 

Switzerland

 

 

4,916

 

 

 

1,366

 

United Kingdom

 

 

38,371

 

 

 

38,129

 

Other countries

 

 

19

 

 

 

42

 

Total

 

$

64,539

 

 

$

61,220

 

 

Long-lived assets:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

United States

 

$

396

 

 

$

523

 

Switzerland

 

 

536

 

 

 

535

 

United Kingdom

 

 

15,717

 

 

 

15,064

 

Other countries

 

 

2

 

 

 

2

 

Total

 

$

16,651

 

 

$

16,124

 

 

Long-lived assets include fixed assets, intangibles and other assets.

No other individual country represented greater than 10% of total revenues, total assets or long-lived assets for any period presented.

For the three months ended March 31, 2018 and 2017, Merck KGaA accounted for 100% of the product segment revenue. At March 31, 2018 and December 31, 2017, Merck KGaA made up 100% of the product segment accounts receivable.

For the three months ended March 31, 2018 and 2017, the same customer accounted for 33% and 17% of the service segment total revenue, respectively.  No additional customers accounted for 10% or more of the service segment total revenue for the three months ended March 31, 2018 and 2017.  At March 31, 2018 and December 31, 2017, one customer accounted for 44% and 53% of total service segment accounts receivable, respectively.

The following summarizes other information by segment for the three months ended March 31, 2018 (in thousands):

 

 

 

Product

 

 

Service

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

10,074

 

 

$

 

 

$

10,074

 

Service revenues

 

 

 

 

 

5,450

 

 

 

5,450

 

Total revenues

 

$

10,074

 

 

$

5,450

 

 

$

15,524

 

Cost of product revenues

 

$

6,016

 

 

$

 

 

$

6,016

 

Cost of service revenues

 

 

 

 

 

3,010

 

 

 

3,010

 

Total cost of revenues

 

$

6,016

 

 

$

3,010

 

 

$

9,026

 

Gross profit

 

$

4,058

 

 

$

2,440

 

 

$

6,498

 

Total operating expenses

 

 

 

 

 

 

 

 

 

 

5,482

 

Total non-operating expense

 

 

 

 

 

 

 

 

 

 

(244

)

Income (loss) before income taxes

 

 

 

 

 

 

 

 

 

$

772

 

 

9


 

The following summarizes other information by segment for the three months ended March 31, 2017 (in thousands):

 

 

 

Product

 

 

Service

 

 

Total

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Product revenues

 

$

7,726

 

 

$

 

 

$

7,726

 

Service revenues

 

 

 

 

 

3,521

 

 

 

3,521

 

Total revenues

 

$

7,726

 

 

$

3,521

 

 

$

11,247

 

Cost of product revenues

 

$

4,313

 

 

$

 

 

$

4,313

 

Cost of service revenues

 

 

 

 

 

2,243

 

 

 

2,243

 

Total cost of revenues

 

$

4,313

 

 

$

2,243

 

 

$

6,556

 

Gross profit

 

$

3,413

 

 

$

1,278

 

 

$

4,691

 

Total operating expenses

 

 

 

 

 

 

 

 

 

 

6,146

 

Total non-operating income

 

 

 

 

 

 

 

 

 

 

14

 

Income (loss) before income taxes

 

 

 

 

 

 

 

 

 

$

(1,441

)

 

 

 

(7) Property and Equipment

Property and equipment consists of the following (in thousands):

 

 

 

Estimated

Useful Life

(Years)

 

March 31,

2018

 

 

December 31,

2017

 

Machinery and equipment

 

3-10

 

$

13,013

 

 

$

12,358

 

Furniture and fixtures

 

3-5

 

 

1,083

 

 

 

1,083

 

Computer equipment and software

 

3-5

 

 

628

 

 

 

628

 

Buildings

 

Up to 39

 

 

8,301

 

 

 

7,995

 

Land

 

Indefinite

 

 

532

 

 

 

513

 

Construction in-process

 

 

 

 

1,508

 

 

 

1,133

 

 

 

 

 

 

25,065

 

 

 

23,710

 

Less: Accumulated depreciation

 

 

 

 

(9,185

)

 

 

(8,481

)

Total

 

 

 

$

15,880

 

 

$

15,229

 

 

Depreciation expense was $0.5 million and $0.4 million for the three-month periods ended March 31, 2018 and 2017, respectively.   

 

Machinery and equipment includes $1.5 million of equipment purchased under equipment loans.  

 

(8) Shareholders’ Equity

Preferred Stock

During the quarter ending June 30, 2017, the Company issued a Notice of Conversion to the holders of its Series B and a Notice of Redemption to the holders of its Series C giving notice that on June 30, 2017 (the “Redemption and Conversion Date”) all outstanding shares of the respective Preferred Stock issuance would be converted, as in the case of the Series B, or redeemed, as in the case of the Series C. The Series B, by its terms, automatically converted into shares of common stock, upon the occurrence of the event. On the Redemption and Conversion Date, each share of the 130 shares of Series B outstanding converted into 2.78 shares of common stock resulting in an issuance of 361 shares.

The holders of each share of the 550 shares of Series C outstanding had the right to require the Company to redeem their shares in cash plus all accrued and unpaid dividends thereon the date such redemption is demanded. On the Redemption and Conversion Date, the Company paid to the holders of the Series C approximately $0.01 million and as a result of the transaction recorded the excess of the carrying value of Series C over redemption value of approximately $0.5 million to accumulated deficit for the year ended December 31, 2017. There are no outstanding shares of either the Series B or the Series C at March 31, 2018 or December 31, 2017.

  

   

10


 

(9) Net Income (Loss) Per Common Share

The calculation of basic and diluted income (loss) per common share and common share equivalents is as follows (in thousands except for per share data):

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Basic net income (loss) per common share

 

 

 

 

 

 

 

 

Net income (loss)

 

$

772

 

 

$

(1,441

)

Less: Preferred stock dividends

 

 

 

 

 

(7

)

Net income (loss) applicable to common

   stock

 

$

772

 

 

$

(1,448

)

Basic weighted average number of common

   shares outstanding

 

 

10,943

 

 

 

10,803

 

Basic net income (loss) per common share

 

$

0.07

 

 

$

(0.13

)

Diluted income (loss) per common share

 

 

 

 

 

 

 

 

Net income (loss) applicable to common

   stock

 

$

772

 

 

$

(1,448

)

Add: Preferred stock dividends

 

 

 

 

 

7

 

Net income (loss) applicable to dilutive

   common stock

 

$

772

 

 

$

(1,441

)

Basic weighted average number of common

   shares outstanding

 

 

10,943

 

 

 

10,803

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

Dilutive stock awards

 

 

1,344

 

 

 

 

Diluted weighted average number of common

   shares outstanding

 

 

12,287

 

 

 

10,803

 

Diluted net income (loss) per common share

 

$

0.06

 

 

$

(0.13

)

 

Basic net income (loss) per common share is computed by dividing the net income (loss), less preferred dividends through March 31, 2018, by the weighted-average number of shares of common stock outstanding during a period. The diluted income (loss) per common share calculation gives effect to dilutive options, convertible preferred stock, and other potential dilutive common stock including restricted shares of common stock outstanding during the period. Diluted net income (loss) per share is based on the treasury stock method and includes the effect from potential issuance of common stock, such as shares issuable pursuant to the exercise of stock options, assuming the exercise of all in-the-money stock options. Common share equivalents have been excluded where their inclusion would be anti-dilutive.

Shares to be issued upon the exercise of the outstanding options, performance-based restricted stock units, convertible preferred stock, and selected restricted shares of common stock excluded from the income per share calculation amounted to 0.7 million and 2.3 million in each of the three-month periods ended March 31, 2018 and 2017, respectively, because the awards were anti-dilutive.

(10) Accumulated Other Comprehensive Loss

Changes to accumulated other comprehensive loss during the three months ended March 31, 2018 were as follows (in thousands):

 

 

 

Translation

Adjustment

 

Balance—December 31, 2017

 

$

(3,157

)

Current period other comprehensive income

 

 

940

 

Balance—March 31, 2018

 

$

(2,217

)

 

11


 

(11) Stock-Based Compensation

Stock Incentive Plan – Stock Options

Juniper granted options to purchase 293,500 and 655,400 shares of common stock to employees during the three months ended March 31, 2018 and 2017, respectively. There were no options granted to non-employees during the three months ended March 31, 2018 and 2017. Stock options granted to employees typically vest over a four-year term and options granted to non-employee directors typically vest over a three-year term.

The Company uses the Black-Scholes option pricing model to determine the estimated grant date fair values for stock-based awards. The Black-Scholes option pricing model requires the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The Company’s assumptions do not include an estimated forfeiture rate.

The weighted-average grant date fair values of options granted to employees during the three months ended March 31, 2018 and 2017 were $3.40 and $2.44, respectively, using the following assumptions:

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Risk free interest rate

 

2.15%

 

 

1.45% - 1.48%

 

Expected term

 

4.75 years

 

 

4.5 - 4.75 years

 

Dividend yield

 

 

 

 

Expected volatility

 

47.79% - 47.86%

 

 

54.60% - 55.20%

 

 

The Company records stock-based compensation expense for stock options granted to non-employees based on the fair value of the stock options, which is re-measured over the graded vesting term resulting in periodic adjustments to stock-based compensation expense.  The stock-based compensation expense recorded for non-employees is primarily reflected in the research and development line of the statement of operations and is remeasured on a quarterly basis from the date of grant. The Company did not record any stock-based expense for non-employee awards during the three months ended March 31, 2018 as all options were fully vested. During the three months ended March 31, 2017, the Company recorded a reduction of stock-based compensation expense of $0.1 million for non-employee options as a result of changes in the fair value of the options during the period.  

Stock Option Plan – Restricted Stock

Juniper granted 122,300 and 5,625 time-based restricted stock units to employees and non-employee directors, respectively, during the three months ended March 31, 2018. The Company granted 52,700 time-based restricted stock units to employees during the three months ended March 31, 2017.  The weighted-average grant date fair value of the time-based restricted stock units was $8.18 and $5.15 per share during the three months ended March 31, 2018 and 2017, respectively. The Company recognizes stock-based compensation expense for time-based restricted stock units over the vesting period. There were 9,300 time-based restricted stock units that vested during the three months ended March 31, 2018. No time-based restricted stock units vested during the three months ended March 31, 2017.

The Company granted 181,000 performance-based restricted stock units to employees during the three months ended March 31, 2017. No additional performance-based restricted stock units were granted during the three months ended March 31, 2018. These performance-based restricted stock units vest based upon the occurrence of certain operational and strategic events that were determined by the Company’s Board of Directors and approved by the Company’s Compensation Committee. The Company considers the performance criteria at each balance sheet date and recognizes stock-based compensation expense for those criteria considered probable. During the year ended and at December 31, 2017, 109,550 performance-based restricted stock units expired. At December 31, 2017, performance-based restricted stock units outstanding totaled 76,450. On January 8, 2018, the Company announced the 4.5-year extension of its supply agreement for Crinone with an affiliate of Merck KGaA, Darmstandt, Germany. On February 7, 2018, the Company’s Compensation Committee of the Board of Director approved the vesting of 27,800 awards affiliated with this performance condition and as a result the Company recorded a charge to stock compensation expense during the first quarter of 2018 totaling $0.1 million. At March 31, 2018, performance-based restricted stock units outstanding totaled 48,650.

12


 

Stock-based compensation relates to options granted to employees, non-employee directors and non-employees, time-based restricted stock units granted to employees and non-employee directors and performance-based restricted stock units granted to employees. Stock-based compensation expense was $0.6 million and $0.3 million for the three months ended March 31, 2018 and 2017, respectively. Total stock-based compensation expense was recorded to cost of revenues and operating expenses based upon the functional responsibilities of the individuals holding the respective awards as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Cost of revenues

 

$

38

 

 

$

28

 

Sales and marketing

 

 

13

 

 

 

11

 

Research and development

 

 

18

 

 

 

(43

)

General and administrative

 

 

497

 

 

 

345

 

Total

 

$

566

 

 

$

341

 

 

There were 226,876 of stock option exercised during the three months ended March 31, 2018 for which the Company received $1.4 million. There were no option exercises during the three months ended March 31, 2017.

As of March 31, 2018, the total unrecognized compensation cost related to outstanding stock options and time-based restricted stock units expected to vest was $4.3 million, which the Company expects to recognize over a weighted-average period of 2.98 years.

   

(12) Fair Value of Financial Instruments

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported values. ASC 820 establishes a framework for measuring fair value U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets and liabilities.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of cash and cash equivalents are classified as Level 1 at March 31, 2018 and December 31, 2017.

Some of the estimates and assumptions in the Company's goodwill impairment assessment include: the amount and timing of the projected net cash flows, the discount rate, and the tax rate.

The fair values of accounts receivable and accounts payable approximate their respective carrying amounts. The Company’s long-term debt is carried at amortized face value, which approximates fair value based on current market pricing of similar debt instruments and is categorized as a Level 2 measurement.

The Company did not have transfers of financial assets between Level 1 and Level 2.

13


 

(13) Income Taxes

During the three months ended March 31, 2018, Juniper recorded no income tax expense as the Company had net loss carryforwards to off-set expected taxable income forecasted for the year which are fully offset by valuation allowances maintained in the U.S., United Kingdom and France. During the three months ended March 31, 2017, Juniper recorded no income tax expense due to expected losses forecasted for the year.

On December 22, 2017 President Donald Trump signed into U.S. law the Tax Cuts and Jobs Act of 2017 (“Tax Reform”). ASC Topic 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions of the law, January 1, 2018.

One of the Tax Reform provisions effective January 1, 2018 includes a minimum tax on certain foreign earnings in excess of 10% of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or “GILTI”). Under the U.S. generally accepted accounting principles, companies are allowed to make an accounting policy election of either (i) account for GILTI as a component of tax expense in the period in which the Company is subject to the rules (the “period cost method”), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the “deferred method”). The Company is currently accounting for GILTI using the period cost method as it continues to evaluate the two policies available. Under the period cost method, the Company has included approximately $0.5 million GILTI in US taxable income, fully off-set by net operating loss carryforwards.  

 

Given the significance of the legislation, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended prior to the one-year term when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed. As of March 31, 2018, the Company has not recorded any incremental accounting adjustments related to the impact of Tax Reform that were recorded in its December 31, 2017 financial statements and it continues to assess its provisional estimate and technical interpretations of its application.

The Company operates in multiple countries. Accordingly, separate tax filings are required based on jurisdiction. Due to the separate tax filings of our U.S., U.K. and France jurisdictions, the Company has evaluated the need for a valuation allowance on a separate jurisdiction basis. As of March 31, 2018, the Company continues to maintain a full valuation allowance against all net deferred tax assets.

Tax Reform included a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S. deferred tax liability had been accrued have now been subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, the Company intends to continue to invest all of these earnings, as well as the capital in these subsidiaries, indefinitely outside of the U.S. The amount of any unrecognized deferred tax liability on these undistributed earnings would be immaterial.

The Company files tax returns in the United States, United Kingdom, France and various state jurisdictions. All of the Company’s tax years remain open to examination by major taxing jurisdictions to which the Company is subject, as carryforward attributes generated in past years may still be adjusted upon examination by the Internal Revenue Service or state and foreign tax authorities if they have or will be used in future periods. The Internal Revenue Service has concluded their audit of the 2011 and 2012 tax years. There were no material findings resulting from their audit. Additionally, with few exceptions, Juniper is no longer subject to U.S. state tax examinations for years prior to 2012.

(14) Recent Accounting Pronouncements

 

Adopted

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, (“ASU 2016-15”), which amends the guidance of ASC No. 230 on the classification of certain items in the statement of cash flows. The primary purpose of ASU 2016-15 is to reduce the diversity in practice by making amendments that add or clarify the guidance on eight specific cash flow issues. ASU 2016-15 is effective for all fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2016-15 should be applied retrospectively to all periods presented, but may be applied prospectively from the earliest practicable if retrospective application would be impracticable. The adoption of this standard did not have an impact on the Company’s consolidated financial statements and related disclosures.

14


 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, which provides new guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The standard became effective beginning in the first quarter of 2018 and early adoption is permitted. The adoption of this standard did not have an impact on the Company’s consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year, but permits companies to adopt one year earlier if they choose (i.e. the original effective date). As such, ASU 2014- 09 will be effective for annual and interim reporting periods beginning after December 15, 2017. In March and April 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Consideration (Reporting Revenue Gross versus Net) and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, respectively, which clarify the guidance on reporting revenue as a principal versus agent, identifying performance obligations and accounting for intellectual property licenses. In addition, in May 2016 and December 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, both of which amend certain narrow aspects of Topic 606. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. See the Company’s discussion of the impact of this adoption in Note 16 – Revenue Recognition.

 

To be adopted

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the method and impact that the adoption will have on its consolidated financial statements and related disclosures.

 

(15) Restructuring Charges

In September 2017, the Company announced a corporate reprioritization which aimed to re-focus its resources on the core businesses of Crinone progesterone gel and JPS and reduce expenditures on research and development activities associated with the Company’s IVR program with the goal of potentially identifying a partner for one or more of its IVR product candidates. As a result, during the fiscal year ended December 31, 2017, the Company incurred approximately $0.8 million in restructuring charges. The Company accounted for these actions in accordance with ASC 420, Exit or Disposal Cost Obligations.       

 

The following table summarizes the components of the Company’s restructuring activity recorded in the accompanying balance sheets (in thousands):

 

 

 

Amounts accrued at December 31, 2017

 

 

Expense incurred

 

 

Amounts paid

 

 

Amounts accrued at March 31, 2018

 

Employee severance, benefits and related costs

 

$

72

 

 

$

 

 

$

(72

)

 

$

 

Obligations under manufacturing and development

   contracts

 

 

283

 

 

 

 

 

 

(113

)

 

 

170

 

 

 

$

355

 

 

$

 

 

$

(185

)

 

$

170

 

15


 

 

No significant additional charges are anticipated relating to this restructuring plan. The Company expects to pay approximately $0.1 million and $0.1 million during the remainder of 2018 and beyond, respectively.     

 

(16) Revenue from Contracts with Customers

 

The new accounting standard for recognition of revenue, Topic 606, was adopted by the Company for its fiscal year beginning on January 1, 2018. In accordance with Topic 606, the Company recognizes revenue following the five-step model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The five-step model prescribed under Topic 606 include: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) the Company satisfies the performance obligation. The Company adopted Topic 606 using the modified retrospective transition method. In adopting Topic 606, the Company applied the new guidance only to contracts that were not completed on January 1, 2018. The Company does not disclose information about remaining performance obligations that are part of contracts with an original expected duration of one year or less and does not adjust for the effect of the financing components when the period between customer payment and revenue recognition is one year or less, which are practical expedients provided within Topic 606.

Product Revenue

The adoption of Topic 606 resulted in a change in the pattern of revenue recognition for product revenue.  Our revenue and related cost of sales are primarily the result of firm purchase commitments, generally only for a short period of time. Revenue is recognized when our performance obligation has been met, upon shipment to the customer. Selling prices to Merck KGaA for Crinone are determined on an annual and country-by-country basis. Juniper records revenue at a transaction price that most closely approximate what it will be sold for by Merck KGaA. The transaction price is determined by evaluating the Merck KGaA selling price.  The Company records as deferred revenue amounts invoiced above the transaction price. Accordingly, product revenue in each period includes both an amount for product shipped to Merck KGaA in the current period recognized at the transaction price and an amount for product shipped by Merck KGaA to its customers in the current period equal to the difference between the invoice price and the transaction price.  

Product revenue is recorded net of variable consideration which include volume discounts and price adjustments. Merck KGaA is entitled to a volume discount based on annual purchases. The Company records reserves against revenue on a quarterly basis to reflect the volume discount expected to be earned by Merck KGaA during the year. In addition, any difference between selling price to Merck KGaA and Merck KGaA’s actual net selling price are billed or credited to Merck KGaA in the quarter the product is sold through by Merck KGaA. Product sales are recorded net of value-added tax and similar taxes. Shipping and handling costs are recorded in cost of revenue.

Upon adoption, the Company recorded approximately $5.7 million as an adjustment to both deferred revenue and accumulated deficit. In accordance with Topic 605, the Company would have recognized approximately $8.7 million in product revenue for the three months ended March 31, 2018 and product deferred revenue as of that